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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Trade of the week: short USD/JPY

Explore a strategic short position on USD/JPY as technical patterns suggest a continuation of the downtrend, with potential targets below April's lows.

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Written by

Axel Rudolph FSTA

Axel Rudolph FSTA

Senior Technical Analyst

Article publication date:

(AI video summary)

Current trade overview: 

In the current market environment, a trading opportunity has been identified with USD/JPY. The strategy involves taking a short position based on technical patterns suggesting a continuation of the established downtrend after a corrective phase.

Trade setup

  • Entry point: short USD/JPY around ¥144.00, with current levels also providing an opportunity to enter
  • Stop loss: set at ¥146.00, positioned above last week's high to limit potential losses if the market moves against the position
  • Target: aim for a downside target of ¥138.00, with potential for further decline

Risk-reward ratio

This trade offers a favourable risk-reward ratio, with approximately 2 points of risk for 6 points of potential reward. As with all currency trades, proper position sizing and risk management are essential.

Market context

USD/JPY has recently completed what appears to be an 'ABC' zigzag correction in Elliott wave terms. This three-legged correction pattern is similar to the formation observed in March, which was followed by a continuation of the downtrend. A sell signal has emerged, suggesting the corrective phase has concluded and the broader downtrend is resuming.

If the pair breaks below the April low, which coincides with the September 2024 bottom at approximately ¥139.58, the next significant support zone comes in at levels last traded in July 2023, between ¥137.50 and ¥138.00.

Cautionary note: while this trade presents a structured opportunity, market conditions can change rapidly. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade.

Important to know

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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